Commercial Energy

What is demand response?

Demand response programs give consumers, whether commercial or residential, an opportunity to reduce their electricity usage to reduce strain on energy infrastructure. In doing so, participants are paid for their efforts in cutting their electricity usage, depending on how much they reduce their consumption.

In Texas, there are two major demand response programs, organized by the Energy Regulatory Commission of Texas (ERCOT) and various Transmission and Distribution Service Providers (TDSPs). Businesses can leverage both programs to maximize the amount of revenue generated through demand response.

Why are demand response programs so popular now?

During peak usage times, the margin between supply and demand can be extremely thin, and an unexpected surge can result in crashing the electrical grid. To counter this, utility companies have a few options, including:

Firing up a peaker plant

Peaker plants are held in reserve in the event that consumption exceeds availability. However, peaker plants are expensive to run and emit significant amounts of pollution, so they aren’t ideal.

Purchasing power from another region

Utility companies can buy power from other states if needed, but this is also expensive and it’s not always available.

Drawing power from renewable sources

Solar and wind farms are a clean way to supplement the grid, but they aren’t always available either.

There are issues with all of the above, which is why ERCOT and utility companies are working with customers directly to incentivize usage reduction. This is where demand response programs come in.

How does demand response work for businesses?

Demand response programs have been organized to reduce the likelihood of blackouts during peak usage periods in Texas. That means participating companies must be prepared to reduce power consumption on short notice – but it’s easily possible with the right technology and procedures in place. Here’s how it works for both programs:

ERCOT Programs

ERCOT’s demand response programs are available year-round and divided into three four-month segments. On a daily basis, the program is further divided into four time blocks, including 8 a.m. to 1 p.m., 1 p.m. to 4 p.m., 4 p.m. to 7 p.m. and outside of normal business hours. Companies can choose what time blocks they are available for demand response, to minimize any disruption to operations. However, businesses will earn more revenue for full participation, so there’s an incentive to transition to a comprehensive demand response model.

ERCOT programs are further divided into 10-minute or 30-minute demand response events. That means businesses can choose to be alerted either 10 or 30 minutes prior to reducing consumption, but there are considerations with both programs. For example, businesses can use emergency generators to offset the electricity they draw from the grid if enrolled in the 10-minute response program. Emergency generators, however, are not an option for participants in the 30-minute response program. Telemetry equipment is required to participate in this program, but the cost is low and installation is quick.

Before a business can fully join ERCOT’s demand response programs, though, ERCOT will call for a 30-to-45-minute test to see if the business can hit their usage reduction target. This test is repeated annually to confirm ongoing compliance.

TDSP Program

In Texas, CenterPoint runs an annual demand response program, but it’s only available during summer months (June to September). There is only a single available time block for CenterPoint’s program, which runs from 1 p.m. to 7 p.m. on weekdays. Federal holidays are excluded in this schedule.

Like with ERCOT, CenterPoint requires companies to participate in a test to confirm their ability to reduce usage. This test will not last longer than three hours, and unscheduled demand response events will not exceed four hours.

How can companies get the most out of demand response programs?

To join one or more demand response programs, businesses must sign onto a 3–5-year contract, but over the life of this contract, companies can earn hundreds of thousands of dollars in net revenue. The more consumption a business reduces, the more they will earn through demand response programs, so an efficient demand response plan means more revenue. Consider, for instance, that through the CenterPoint program, participants will earn $35,000 for each megawatt (MW) of consumption they reduce. That can add up quickly, and to ensure your business can maximize generated revenue, the following approach will help:

Participate in both ERCOT and
CenterPoint programs

Businesses are not obligated to choose either ERCOT or CenterPoint over the other when both programs are available. Because companies can specify their demand response commitment to ERCOT, they can switch from the ERCOT program to the CenterPoint program during the summer, when it’s available. This is worth considering because the CenterPoint program pays more than ERCOT, though ERCOT programs are always available. Businesses can therefore maximize their revenue by working with both.

Work with an energy company that has experience with demand response

Demand response programs are easy to set up and run if you work with a company that has experience in the area. In Texas, Constellation Energy is one such company, as it has more than a decade of experience implementing and maintaining demand response programs with its clients. Its knowledge in this area allows Constellation to minimize, even eliminate, direct costs to its clients when starting a demand response program. This means your business can get started immediately.

Know the difference between manual and automated demand response initiatives

To achieve demand response targets, businesses can reduce their consumption through manual or through automated means. Manual demand response, though, requires personnel to make the necessary adjustments right away, which isn’t ideal for many operations. That is why many businesses opt for an automated approach, as the utility company can make the necessary adjustments instantly, with minimal disruption to operations. Businesses work with their provider to specify how to reduce consumption beforehand, so power isn’t cut to essential technologies.

Demand response programs are a simple way for businesses to add revenue, control energy costs and do their part to maximize the electrical grid’s reliability. To get the most out of demand response initiatives, businesses should work with an energy broker with demand response expertise.